The most common types of pension are the aforementioned Personal Pension Plans and Company Occupational Final Salary Schemes. Final Salary Schemes are in decline and in many cases are being closed down by companies, simply because they can’t afford to run them any longer.

The rules of Personal Pension Plans state that 25% of the final pension pot can be taken as a tax-free lump sum, but the balance must be used to purchase an annuity, which is then taxable. Final salary schemes are paid out by the company, and the amount is calculated as the final salary multiplied by the years of service, i.e. it’s not an annuity-based arrangement. Like PPP’s, a tax-free lump sum may be taken, which is usually one-and-a-half times final salary. Subsequent income is taxed. Retirees with PPP’s are often penalised because annuity rates vary, and may be relatively disadvantageous, at the time you reach retirement age. Normally occupational schemes can’t be accessed until you are aged 65, and your spouse will only receive 50% of the benefit should you die.

There are many British expat retirees living in Thailand. I wonder, though, how many know that there are now pension arrangement alternatives available, in the form of Self Invested Pension Plans (SIPP) and Qualifying Registered Overseas Pension Schemes (QROPS). In most cases people can transfer from their UK schemes even if already in drawdown, and take advantage of the many benefits SIPP’s and QROPS’s have to offer.

So to set the scene, let me first of all introduce QROPS. Unlike occupational schemes, access to the pension pot is permitted at age 50 (55 from 2010). QROPS can hold existing, frozen personal pensions, SIPP’s, money purchase company benefits, final salary company benefits and most importantly, commercial property. Many people may have several frozen pensions in all these forms. At retirement age, you can bring all of them together in one QROPS.

Her Majesty's Revenue and Customs (HMRC) permit UK pension rights to be transferred to a QROPS. The key attraction of doing this lies in the fact that, for those who have been non-UK residents for at least five tax years, the pension fund becomes subject to the laws of the relevant overseas jurisdiction. Two major benefits stem from this. First of all, income can normally be paid tax-free, and secondly the UK requirement to purchase an annuity by age 75, or be faced with the prospect of a possible 82% tax charge on death after 75, no longer applies. Possibly, these are the most compelling and important reasons to investigate QROPS. You’ve no requirement to convert your pension fund to an annuity. You can also pass on the benefits of your pension to beneficiaries, and not incur inheritance taxes, which can be as high as 40%.

Effecting a transfer into a QROPS is relatively straightforward. Once a transfer value is established and your suitability approved, most UK registered pension schemes will be paid to the QROPS in cash. On receipt, cash funds will be placed on deposit with a leading institution by the scheme administrators, and a competitive rate of interest will be applied.

So, QROPS can be used to purchase property (internationally), create income early in retirement, pass the fund to family members or other beneficiaries, in total, avoid annuities and maximise tax benefits on death. Make sure that the solution meets your objectives now, and will continue so to do in the future. The jurisdiction ruling the scheme must continue to recognise it as qualifying. Seek professional help and engage the services of a qualified specialist in this sector, if necessary.

In next month’s issue, I’ll talk more about SIPP’s and pension vehicles for younger people and individuals living outside the UK.